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Why the SP 500 and Gold Rallied in the Face of Negative News

By: JW Jones | Sunday, November 25, 2012

The amount of negative news that we have seen recently has been mind-blowing.
Europe is going into recession, Greece and several other countries are on
the verge of bankruptcy, the Middle East is a powder-keg, and the U.S. is
facing a fiscal cliff. Shockingly for most retail traders, the past week has
produced a very strong return for U.S. equity indexes as well as risk assets
in general.

Retail investors often times consistently lose money because they focus on
the financial media and all of the negative news that is out there. Trust
me, as a longer term trader and investor, there is never an absence of negative
news or potentially poor economic possibilities. This is not to say that markets
cannot decline, investors just need to understand that markets are cyclical
in nature and do not ever move in a straight line.

Based on what I was reading from most of the financial blogosphere recently,
you would think that the entire world was about to end. A few blogs were calling
for an all out collapse late last week or a possible crash this past Monday,
November 19th. As is typically the case, the market prognosticators were wrong
with the calls for a crash or an absolute collapse in financial markets.

Unlike those blogs, members of my service at TradersVideoPlaybook.com were
getting information indicating that we were expecting higher prices. At our
service, we lay out regular videos covering a variety of underlying assets
from the S&P 500 Index and oil futures, to gold and treasury futures.
The focus is purely on analysis of various underlying assets across multiple
time frames. We cover intraday time frames as well as daily and weekly swing
time frames throughout the week with videos and written updates.

To put into perspective what we were seeing in the marketplace on Monday November
19th, the following chart was sent out to our members during intraday trading
that day.

As can be seen above, the target we were expecting was at the top of the
recent channel. As shown directly on the chart above was my comments that
if the 1,410 level on the S&P 500 Index could be taken out to the upside,
the bulls would have an opportunity to move prices higher into the end of
the year. The daily chart of the S&P 500 Index after the close on Friday
November 23.

As can be seen above, the S&P 500 Index moved right into the expected
target price range and closed literally at the very top end of the range shown
above. If prices move considerably higher, the bulls will have broken the
descending channel and higher prices will likely await.

Next week's price action is going to have a dramatic impact on the price direction
of the broader market indexes. One important aspect that I would point out
to readers is that the large move higher shown above came on exceptionally
light volume due to the holiday week. In light of that, a strong reversal
cannot be ruled out. Caution is warranted regardless of a trader or investor's
directional bias.

One of the most important charts to monitor over the past few weeks has been
the U.S. Dollar Index futures. Typically a stronger Dollar has been bearish
for equities and risk assets in general. However, on Friday we saw a very
strong selloff in the U.S. Dollar Index futures as shown below.

As can be seen above, the U.S. Dollar Index futures closed on Friday right
at a key support level having given back much of the recent gains. If the
Dollar continues to move lower it should put a floor under stock indexes and
push risk assets higher overall.

Two major moves higher occurred in light of this weakening Dollar on Friday
in both gold and silver futures. The precious metals had a very strong move
higher after the U.S. Presidential election and have been consolidating now
for a few weeks. Prices in both gold and silver had strong moves higher on
Friday which were accompanied by very strong volume. The daily chart of gold
futures is shown below.

Gold futures had a huge move higher today supported by strong volume. Based
on today's action, I believe that we will see the $1,800 / ounce resistance
level tested in the near term. Seasonally speaking, this time of the year
is bullish for gold and silver and should the strong seasonality correspond
with a weak U.S. Dollar much higher prices likely await in the precious metals
sector.

Members of TradersVideoPlaybook were made aware that I was expecting very
strong action in both gold and silver when they broke higher after nearly
testing their 200 period moving averages. At the time, I told members that
as long as the breakout from the consolidation zone from the July - August
time frame held as support, higher prices were likely and that is just what
we have seen.

Overall, I believe that the quarters ahead should be strong for both gold
and silver. Time will tell whether oil futures and the broader equity markets
will also move higher. I continue to believe that monitoring the Dollar Index
futures closely is an important part of assessing the directional bias to
expect in the months ahead.

We have a lot of negative news in the headlines, but Mr. Market has fooled
most investors and traders alike the past week. If you were one of those investors
that were fooled, consider taking advantage of our weekend special by clicking
the link below:

J.W. Jones is an independent options trader using multiple forms of analysis
to guide his option trading strategies. Jones has an extensive background
in portfolio analysis and analytics as well as risk analysis. J.W. strives
to help traders that are missing opportunities trading options. He also commits
to writing content which is not only educational, but entertaining as well.
Regular readers will develop the knowledge and skills to trade options competently
over time. Jones focuses on writing spreads in situations where risk is clearly
defined and high potential returns can be realized.

This material should not be considered investment advice. J.W. Jones is not
a registered investment advisor. Under no circumstances should any content
from this article or the OptionsTradingSignals.com website be used or interpreted
as a recommendation to buy or sell any type of security or commodity contract.
This material is not a solicitation for a trading approach to financial markets.
Any investment decisions must in all cases be made by the reader or by his
or her registered investment advisor. This information is for educational
purposes only.